10-QPeriod: Q3 FY2008

BOSTON SCIENTIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 7, 2008For Securities:BSX

Summary

Boston Scientific Corporation reported a net loss of $62 million ($0.04 per share) for the third quarter of 2008, compared to a net loss of $272 million ($0.18 per share) in the same period last year. Despite a decrease in net sales to $1.978 billion from $2.048 billion year-over-year, the company demonstrated improved profitability due to significant cost-saving measures and the divestiture of non-strategic businesses. The company faced substantial litigation-related charges, notably a $334 million pre-tax charge from a Johnson & Johnson patent infringement case. However, strategic initiatives, including restructuring efforts and the sale of underperforming assets, are showing positive signs in managing operational expenses and improving financial condition. The company's debt levels have decreased, and it remains compliant with its financial covenants.

Financial Highlights

25 data points
Beta

Revenue

$1.98B

66.9% Gross Margin

Net Income

-$62.00M

-3.1% Net Margin

EPS (Diluted)

$-0.04

Cash & Equivalents

$1.73B

Free Cash Flow

$566.00M

Financial Statements
Beta
Revenue$1.98B
Cost of Revenue$655.00M
Gross Profit$1.32B
SG&A Expenses$610.00M
Operating Expenses$1.29B
Operating Income$28.00M
Interest Expense$112.00M
Net Income-$62.00M
EPS (Basic)$-0.04
EPS (Diluted)$-0.04
Shares Outstanding (Basic)1.50B
Shares Outstanding (Diluted)1.50B

Key Highlights

  • 1Net sales decreased by 3% to $1.978 billion in Q3 2008 compared to $2.048 billion in Q3 2007.
  • 2Reported a net loss of $62 million ($0.04 per share) in Q3 2008, an improvement from a net loss of $272 million ($0.18 per share) in Q3 2007.
  • 3Incurred a significant litigation-related charge of $334 million pre-tax due to a patent infringement ruling by Johnson & Johnson.
  • 4Divested several non-strategic businesses, generating approximately $1.3 billion in pre-tax proceeds and contributing to expense reduction.
  • 5Implemented restructuring plans aimed at reducing costs and improving efficiency, with expected total pre-tax expenses of $425 million to $450 million.
  • 6Total debt decreased to $6.774 billion as of September 30, 2008, from $8.189 billion as of December 31, 2007.
  • 7Received a $250 million milestone payment from Abbott Laboratories related to the XIENCE V everolimus-eluting coronary stent system.

Frequently Asked Questions

Boston Scientific reported a net loss of $62 million ($0.04 per share) for the third quarter of 2008. While net sales decreased to $1.978 billion from $2.048 billion in the prior year's quarter, the company showed an improvement in its net loss compared to the $272 million loss ($0.18 per share) reported in the third quarter of 2007. This improvement was influenced by strategic divestitures and cost-saving measures, though offset by significant litigation charges.

Profitability is being impacted by several key factors. A significant litigation-related charge of $334 million pre-tax from a patent infringement case with Johnson & Johnson negatively affected results. However, the company is implementing restructuring initiatives aimed at reducing expenses and has divested non-strategic businesses, which are contributing to cost savings and improved operational efficiency. Additionally, the increasing sales mix towards lower-margin PROMUS stent systems compared to higher-margin TAXUS stent systems is impacting gross profit margins.

Boston Scientific has focused on reducing its debt burden. Total debt decreased to $6.774 billion as of September 30, 2008, down from $8.189 billion at the end of 2007. This reduction was achieved through debt prepayments, including $1.175 billion of the term loan in the first nine months of 2008. The company also repaid $250 million under its credit and security facility. The company remains compliant with its debt covenants, with a total debt to EBITDA ratio of approximately 2.8 to 1.0 at the end of the quarter.

The coronary stent business, representing 23% of net sales, faced increased competition, leading to a decline in U.S. market share for drug-eluting stents to 45% from 56% in the prior year. The average selling price of the TAXUS stent system also declined. The company launched its PROMUS stent system, supplied by Abbott, which has a lower gross profit margin, impacting overall margins. Boston Scientific is developing next-generation stent systems like PROMUS Element and TAXUS Liberté, aiming to improve gross profit margins and market position.